BVA9510459
DOCKET NO. 92-53 116 ) DATE
)
)
On appeal from the decision of the
Department of Veterans Affairs Regional Office in Newark, New
Jersey
THE ISSUE
Recovery of loan guaranty indebtedness.
ATTORNEY FOR THE BOARD
Barry F. Bohan, Counsel
INTRODUCTION
The appellant served on active duty in the United States
Marine Corps from March 1968 to March 1974.
This appeal arose from an April 1991 decision of the
Committee on Waivers and Compromises (the Committee) of the
Department of Veterans Affairs Regional Office in Newark, New
Jersey (VARO) which denied the appellant's request for waiver
of recovery of loan guaranty indebtedness.
In April 1992, the Board of Veterans' Appeals (the Board)
remanded this case so that additional issues pertaining to
the appellant's claim could be adjudicated. In June 1992,
VARO wrote to the appellant, requesting additional
information. The appellant did not respond. In November
1993, VARO issued a Supplemental Statement of the Case, which
continued to deny the appellant's request for waiver.
CONTENTIONS OF APPELLANT ON APPEAL
The appellant contends, in substance, that he did not
demonstrate bad faith in connection with the loss of property
secured by a VA guaranteed loan. He further contends that he
was without fault in connection with the loss of the
property. Finally, he contends that collection of the
indebtedness could cause him and his family financial
hardship.
DECISION OF THE BOARD
The Board, in accordance with the provisions of 38 U.S.C.A.
§ 7104 (West 1991), has reviewed and considered all of the
evidence and material of record in the appellant's claims
folder and loan guaranty file. Based on its review of the
relevant evidence in this matter, and for the following
reasons and bases, it is the decision of the Board that the
preponderance of the evidence is against the appellant's
claim and that waiver of recovery of the loan guaranty
indebtedness is denied, based on a finding of bad faith on
the part of the appellant.
FINDINGS OF FACT
1. In September 1975, the appellant and his spouse purchased
a house in Camden County, New Jersey, using a home loan which
was guaranteed, in part, by VA.
2. The appellant defaulted on his home loan payments starting
in September 1976. He informed the mortgage holder that he
would make up the delinquent payments. He did not do so and
had no further contact with the mortgage holder or VA.
3. Foreclosure proceedings were subsequently initiated., and
in June 1978, the property was sold at a Sheriff's Sale for an
amount less than the unpaid principal balance, accrued
interest, and expenses of foreclosure. The related debt to
the government, in the amount of $10,689.09, was charged to
the appellant.
4. The appellant's actions in this case constituted bad
faith.
CONCLUSIONS OF LAW
1. After default, there was a loss of the property which
served as security for the VA guaranteed loan. 38 U.S.C.A. §
5302 (West 1991); 38 C.F.R. § 1.964(a) (1994).
2. The appellant's bad faith precludes consideration of
waiver of recovery of the loan guaranty indebtedness. 38
U.S.C.A. § 5302 (West 1991); 38 C.F.R. §§ 1.964, 1.965 (1994).
REASONS AND BASES FOR FINDINGS AND CONCLUSIONS
The appellant is seeking to preclude recovery by VA of loan
guaranty indebtedness in the original amount of $10,689.09,
plus interest. In the interest of clarity, the Board will
first review the chronological history of this case. The
issue presented in this appeal will then be discussed.
History of the case
In September 1975, the appellant purchased a house in
Gloucester Township, Camden County, New Jersey for $38,400,
using a home mortgage loan which was guaranteed, in part, by
VA. 38 U.S.C.A. §§ 3701 et seq. (West 1991).
In December 1976, the mortgage holder informed VARO that
mortgage payments had not been made since September 1976.
The mortgage holder had contacted the appellant, and who had
promised to make up the payments, but the appellant had not
done so.
In March 1977 mortgage foreclosure proceedings were initiated
in the Superior Court of New Jersey, Chancery Division,
Camden County. A default foreclosure judgment was entered in
April 1978, and the property was sold for $34,645 at a
Sheriff's Sale in June 1978. Throughout the period of
default and foreclosure, the mortgage holder, its attorney
and VA attempted to contact the appellant, without success,
because his whereabouts were unknown.
In November 1978, the mortgage holder filed a claim under the
VA loan guaranty, which was satisfied, in the amount of
$10,689.09, by VA. That amount was charged to the appellant
as loan guaranty indebtedness in March 1979.
In February 1991, the appellant requested waiver of recovery
of the charged loan guaranty indebtedness. In substance, he
attributed his default on loss of income caused by the
failure of his family's business. When he could not make
monthly mortgage payments, he moved his family out of the
house. He acknowledged that he did not contact VA at the
time of default. He indicated that he had expected the house
to sell at a profit on foreclosure and he did not expect to
be charged for attorney's fees and other expenses associated
with the foreclosure. In August 1987, he had been accepted
in an apprenticeship program at the Philadelphia Naval
Shipyard and subsequently found that his wages had been
attached in order to reimburse the government for the loan
guaranty indebtedness. The appellant requested waiver of
recovery of the loan guaranty indebtedness because of
financial hardship to himself and his family.
In its April 1991 decision, the Committee denied the
appellant's request for waiver, based on its finding of bad
faith on his part because he abandoned the property and made
no effort to inform the mortgage holder and VA of his
whereabouts. This appeal followed.
Analysis
Initially, the Board finds that the appellant has presented a
claim which is supported by evidence which leads to the
belief that it is well grounded. 38 U.S.C.A. § 5107(a) (West
1991) and Murphy v. Derwinski, 1 Vet.App. 78 (1990).
Furthermore, we find that the appellant's claim has been
adequately developed for appellate purposes by VARO and that
we may therefore proceed to a disposition of the case. It is
noted that the appellant was contacted by VARO in June 1992
in order to secure an updated Financial Status Report (VA
Form 4-5655). He did not respond. However, as will be
discussed below, the appellant's financial status turns out
not to be a factor in this case.
The evidence has been carefully reviewed and the Board finds
that the loan guaranty indebtedness in the original amount of
$10,689.09 was properly established. Schaper v. Derwinski,
1 Vet.App. 430 (1991). Although the appellant has intimated
that he did not receive adequate notice of his rights at the
time of his default and foreclosure, the record reflects that
he was well aware that he had defaulted on his mortgage
payments, yet he sought no assistance from the mortgage
holder, VA, an attorney, a credit counseling agency, or
anyone else. Further, he did not inform the lender or VA of
his new address after he moved out of the house. The record
indicates that all proper legal procedures were taken to
effectuate mortgage foreclosure New Jersey law. Accordingly,
the Board believes that the appellant was accorded due
process in connection with the mortgage foreclosure and
subsequent assignment of VA loan guaranty indebtedness.
United States v. Whitney, 602 F. Supp. 722, 732 (W.D.N.Y.
1985).
A waiver of recovery of a debt may be authorized in a case in
which collection of the debt would be against equity and good
conscience. 38 U.S.C.A. § 5302(b) (West 1991); 38 C.F.R.
§ 1.964 (a)(2) (1994). "Equity and good conscience" involves
a variety of elements, including the elements of the fault of
the debtor, balancing of faults, and unjust enrichment. undue
hardship. 38 C.F.R. § 1.965 (a) (1994). In essence, however,
"equity and good conscience" means fairness to both the
appellant and to the government.
Under pertinent law and VA regulations, however, no debt may
be waived under the standard of equity and good conscience if
bad faith is found to exist. 38 U.S.C.A. § 5302(c) (West
1991); 38 C.F.R. § 1.965 (b) (1994). In other words, if bad
faith is found, the elements of equity and good conscience are
not for consideration, since the granting of waiver of
recovery is precluded by law.
"Bad faith" is defined in VA regulations as "unfair or
deceptive dealing by one who seeks to gain thereby at
another's expense. Thus, a debtor's conduct in connection
with a debt arising from participation in a VA
benefits/services program exhibits bad faith if such conduct,
although not undertaken with actual fraudulent intent, is
undertaken with intent to seek an unfair advantage, with
knowledge of the likely consequences, and results in a loss to
the government." 38 C.F.R. § 1.965(b) (1994). In general,
"bad faith" implies actual or constructive fraud, or neglect
or refusal to perform some contractual obligation, prompted
not by honest mistake but by some interested motive. Black's
Law Dictionary 139 (6th ed. 1990). VA guidelines refer to bad
faith as a willful intention to either seek an unfair
advantage or to neglect or refuse to fulfill some duty or
contractual obligation. VBA Circular 20-90-5, (February 12,
1990). A determination of bad faith may be based on the
circumstances which led to the default and the foreclosure, as
well as the appellant's attitude toward contractual
obligations, and his actions or omissions with respect to
avoiding foreclosure, as indicated by the evidence of record.
In this case, the evidence of record demonstrates that the
appellant defaulted on mortgage payments starting in
September 1976. He informed the mortgage holder that
payments would be forthcoming. He did not make further
payments, however. The appellant made no further effort to
contact the lender or the lender attorney and indeed could
not be located. The appellant made no effort to contact VA
until 1991, when he discovered that his wages were being
garnished in order to pay the VA loan guaranty debt. It is
also noted that he did not respond to VARO's June 1992
request for additional information.
The Board believes that the appellant's actions show willful
neglect or refusal on his part to fulfill his contractual
obligation. The Board is particularly concerned that the
appellant promised to make up back mortgage payments and then
disappeared. There can be no question that he abandoned the
property. His later protestations that he did not realize
that he owed the mortgage holder VA any money are, in the
Board's opinion, not credible. Accordingly, it is believed
that there was bad faith demonstrated by the appellant in
connection with the creation of the loan guaranty
indebtedness. Since bad faith has been found, the elements
of the standard of equity and good conscience, including the
standard of financial hardship, are not for consideration.
In summary, the Board finds that the preponderance of the
evidence is against the appellant's claim and that his
request for waiver of recovery of the loan guaranty
indebtedness is therefore denied. Gilbert v. Derwinski, 1
Vet.App. 49, 57 (1990). The Board also notes that the
appellant has been given an additional opportunity to present
evidence in support of his request for waiver of recovery of
the loan guaranty indebtedness, and he has apparently chosen
not to do so.
ORDER
Waiver of recovery of loan guaranty indebtedness is denied.
KENNETH R. ANDREWS, JR.
Member, Board of Veterans' Appeals
The Board of Veterans' Appeals Administrative Procedures
Improvement Act, Pub. L. No. 103-271, § 6, 108 Stat. 740, ___
(1994), permits a proceeding instituted before the Board to
be assigned to an individual member of the Board for a
determination. This proceeding has been assigned to an
individual member of the Board.
NOTICE OF APPELLATE RIGHTS: Under 38 U.S.C.A. § 7266 (West
1991), a decision of the Board of Veterans' Appeals granting
less than the complete benefit, or benefits, sought on appeal
is appealable to the United States Court of Veterans Appeals
within 120 days from the date of mailing of notice of the
decision, provided that a Notice of Disagreement concerning
an issue which was before the Board was filed with the agency
of original jurisdiction on or after November 18, 1988.
Veterans' Judicial Review Act, Pub. L. No. 100-687, § 402
(1988). The date which appears on the face of this decision
constitutes the date of mailing and the copy of this decision
which you have received is your notice of the action taken on
your appeal by the Board of Veterans' Appeals.